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Insurance reductions turn on three things: which proceeds figure applies right now, how a mixed settlement is apportioned, and what coverage you are locked into afterward. Ask a specific question — the answer arrives with the document, section, and page behind it.
Citations checked against current published sources 2026-09-04
"The adjuster settled at $1.75 million across building repair and business interruption, and FEMA is deducting the whole number. How much of that actually comes off our project — and now that we have taken permanent work funding, what coverage are we locked into carrying?"
Actual proceeds if known; anticipated proceeds estimated from your policy if not, with eligible costs adjusted later to the actual settlement. The deduction authority is 44 CFR § 206.250(c). Ask which figure applies at your stage and the rule comes back cited — PAPPG v5 Ch. 6 § XX.A, which carries 44 CFR §§ 206.252(c) and 206.253(a). Also covered: the duty to make reasonable efforts to pursue proceeds you are entitled to receive, and the offset for documented costs of pursuing more than the initial settlement.
When a settlement covers losses PA cannot fund — business interruption is the common one — FEMA apportions three ways: proceeds per type of loss as specified in the policy or settlement documentation, policy limits per category of loss, or the ratio of total eligible to total ineligible losses. Quote your allocation line and ask which method it maps to.
"Type" means the hazard that caused the damage. "Extent" is calculated on eligible costs before any reductions, including the non-federal share. Coverage must be maintained for the anticipated life of the restorative work or the insured facility, whichever is shorter (44 CFR § 206.253(e)). The Section 311 requirement is waived when eligible costs for an insurable facility do not exceed $5,000 (44 CFR § 206.253(d)).
For an NFIP-insurable facility, three conditions trigger it: the facility sits in an area identified as an SFHA for more than one year, it was damaged by flooding, and it was uninsured for flood loss. The reduction is the lesser of maximum SFIP proceeds for the building and contents, or their value at the time of the incident (Stafford § 406(d)(2); 44 CFR § 206.252(a)). Ask about the PNP exception and its six-month NFIP participation condition, or the LOMA/LOMR route if you think the mapping is wrong.
If the facility already carried an obtain-and-maintain requirement, that changes this project. No Section 406 assistance is provided for a facility funded in a previous major disaster unless the insurance FEMA required as a condition of that assistance was obtained and maintained (44 CFR § 206.253(f)). Noncompliance means denial or deobligation now, and the facility is ineligible for future PA funding (PAPPG v5 Ch. 8 § X.A).
Business interruption is not PA-eligible, so FEMA apportions the settlement and reduces eligible costs only by the share tied to eligible losses — here the $1,450,000 building allocation — using the proceeds per type of loss stated in your settlement documentation [1]. Documented costs of pursuing proceeds beyond the initial settlement offset that reduction [1]. Obtain-and-maintain is separate and unaffected: extent is calculated on eligible costs before any reduction, including the non-federal share [2], and coverage runs for the anticipated life of the restorative work or the insured facility, whichever is shorter [3].
Sources
PAPPAIA answers targeted questions about passages you point it at. It retrieves the most relevant excerpts of your file alongside the policy corpus — it does not read a document end to end, and it will not tell you what a policy or settlement is missing.
Free while PAPPAIA is in public preview. Answers are grounded in cited policy sources and include exact references for independent verification. General information, not legal or grant-compliance advice.
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